A Shift in the Semiconductor Market: AMD's Hidden Strength in the AI Sector

Advanced Micro Devices (AMD) is increasingly becoming a serious competitor to Nvidia in the fiercely competitive artificial intelligence (AI) market. While Nvidia is regarded by many as the undisputed market leader, AMD surprised the industry by securing a significant contract with Oracle. Despite such successes, AMD remains only minimally profitable, and its revenue growth rate continues to stagnate in the single digits. Although the contract with Oracle is a positive step forward, AMD has yet to play in the same league as Nvidia when it comes to AI accelerators. However, there is one metric that shows remarkable improvement for AMD: the share of data center revenue in total revenue. In the second quarter of 2024, AMD posted revenue of $5.8 billion, a growth of only 9% compared to the previous year. However, this number is misleading as gaming revenue fell by 59% and embedded revenue by 41%. In contrast, revenue in the data center segment, which is focused on the development of AI accelerators, rose by an impressive 115%. Notably, Nvidia's data center revenue accounted for 88% of total revenue in the last quarter. This trend is now also beginning to reflect in AMD's finances. In the second quarter, the data center accounted for 49% of AMD's revenue, compared to just 25% the previous year. If this trend continues, AMD could develop into a formidable competitor to Nvidia in the field of AI accelerators. The chip market is subject to cyclical fluctuations, which means the gaming and embedded segments are unlikely to experience comparable declines again. This could mean that AMD's total revenue—and thus net income—could increase significantly, potentially attracting more investors. Even if AMD is not expected to achieve market leadership in the near term, an increasing contribution from the data center segment to total revenue could significantly drive up the stock price.